Installment land contracts, or "contract-for-deed" deals, remove the mortgage lending institution from the transaction and allow a buyer and seller to work together directly. The seller is usually released from all obligations relating to the property (with the exception of his own mortgage, if there is one), including property taxes, homeowner's insurance, and association fees. However, no two deals are alike, so parties should carefully review their contract to review deal terms.
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By retaining the deed, contract-for-deed sellers are offering a form of financing to the buyer. Deals are usually structured as 30-year notes, with a balloon payment due for the balance after 5 or 10 years. Down payments are often small, between 1 and 10 percent. After the contract term is up, if the buyer can't pay the balance in full, he secures a traditional mortgage as a refinance, with the payments he's made counted as equity. During the term, sellers earn monthly payments comprising principal and interest. Escrow may be established as well, and tax and insurance payments made by the buyer will be deposited into the account, with payments made automatically when bills become due. Alternatively, buyers may opt to pay tax and insurance bills independent of escrow.
